Petro Unfriendly California Changing it's Stance on Oil

The financial crisis changed the way people think. At least some people.

In North America, the bursting of the housing bubble dispelled the myth you could get rich simply by owning a home. Likewise, people are now realizing that buying and holding stocks is not a sure-fire way to grow wealth.

The "get rich easy" schemes are falling by the wayside. Leaving people to once again make money the old fashioned way. Earn it.

The crisis has forced us to ask: what can I offer the world? What value do I bring that someone will pay me for?

With unemployment running near 10% in the U.S. (and similarly high in many other countries), these are crucial questions. You're no longer going to get a job simply by showing up. You need to provide something worthwhile.

And it's not just individuals asking what they can offer the world. Companies and even governments are being forced to rethink the way they handle their finances. A graphic illustration is the financial chaos that has gripped many municipal and state governments in the U.S. A number of states are teetering on the edge of technical bankruptcy.

California is one of them. And news this week suggests that the state's financial problems are forcing officials to rethink what they might offer in order to earn much-needed income. The answer appears to be oil.

California is an exceptionally oil-rich state. Take for example, Long Beach County. The municipality sits atop the Wilmington oil field, which has produced nearly 3 billion barrels of oil over the past century.

However, the state has become increasingly petro-unfriendly over the last few decades. With environmental opposition shutting down much oil development in the state. Particularly in regards to offshore drilling.

But it appears financial woes are changing the official stance on oil. This week it was reported that Long Beach officials are considering new drilling on the Wilmington field. Aimed at producing some of the hundreds of millions of barrels still left in the ground.

The impetus is an estimated $130 million in revenue that could be won by the city through re-drilling the field. This is a lot of money, at a time when funds are badly needed. Which is why the "not in my backyard" movement is suddenly getting a lot less ear from city hall.

This is good to see for the petroleum industry. And we could see more of it, with economic want spurring oil (and gas) development in more places around the U.S. One of the major spots being the coastal states.

It's thought that offshore oil and gas pools are found along most of the American coastline. Yet drilling has largely been restricted to the waters off two states: Texas and Louisiana.

Notionally, the reason other coastal states haven't permitted drilling is environmental concerns. State officials would often talk of the risks involved with offshore petroleum development.

But the real reason has more to do with economics. Under federal law, state governments in places like Florida, Georgia and Virginia were not entitled to share in royalty revenues from offshore oil and gas. The monies would have gone straight to Washington.

Without a piece of the pie, state legislators had no incentive to approve drilling. But that is now changing. Thanks to legislation being pushed through the senate to allow more coastal states to take a share of petroleum royalties.

If passed, these new laws would give state officials a big reason to push oil and gas development. And states are chomping at the bit. This week newly-elected Virginia governor Bob McDonnell sent a letter to Washington's Interior Secretary Ken Salazar, urging the federal government to fast-track new offshore licensing in the state. McDonnell cited the economic downturn as a reason that his state is looking to oil as a new source of revenue.

More states are going to do same. As the financial crisis pushes local governments to search for revenue, petroleum development may well get a boost. An unexpected but welcome consequence of hard times.